Stocks you can pick up this week

TNNAug 28, 2006, 12.05am IST

Crompton Greaves

Research: Edelweiss

Recommendation: Buy

CMP: Rs 209.55 (Face Value Rs 2)

12-Month Price Target: NA

The operating and financial performance of power transmission and distribution (T&D) companies have been heartening in Q1 of FY07. Revenue growth has been strong and operating margins have been above expectations. With domestic business continuing to display strong growth momentum and export business gaining portfolio share, Edelweiss has revised its consolidated revenue estimates to Rs 5,980 crore and Rs 7,690 crore for FY07 and FY08 respectively. Edelweiss revised EPS estimate of Rs 11 and Rs 16; the stock trades at PE 20 times and 14 times FY07E and FY08E respectively. Crompton is valued relatively attractively vis-à-vis the other large-cap infrastructure basket stocks. The discount relative to peer valuation is likely to contract as the benefits of the organic and inorganic growth strategies play out.

M&M

Research: Angel Broking

Recommendation: Hold

CMP: Rs 652.20 (Face Value Rs 10)

12-Month Price Target: Rs 720

M&M has entered into a joint venture (JV) with Renault and International Trucks & Engines Corporation to introduce a new range of utility vehicles (UV) and M&HCVs in the Indian market. M&M has also made strategic acquisitions of plants in China, UK and two assembly plants in the US.

These moves augur well for the company and hold potential of a further re-rating of the stock. Tractor sales are expected to grow by 15% in FY07. Continued growth in tractors in Q1 FY07 points to a strong demand for tractors in rural areas. M&M has enhanced realisation of its tractors division, riding high on an improved product mix, better export sales and greater rural penetration. M&M posted a robust 34% and 11% export growth in the auto and tractor segments, respectively, in the first four months of FY07. At the current market price, M&M is quoting at 18.7 times FY07E and 16.4 times FY08E Earnings. High growth potential of its subsidiaries is expected to unlock actual valuation of the stock.

Oriental Bank of Commerce

Research: ICICI Securities

Recommendation: Hold

CMP: Rs 196.05 (Face Value Rs 10)

12-Month Price Target: NA

As Oriental Bank of Commerce's (OBC) NIMs have been dented by the merger with the erstwhile Global Trust Bank (eGTB) and cost of funds have increased, margin recovery will be delayed considerably. Fee income is growing, but treasury profits may fall sharply. Significant upside exists from recovery of eGTB assets, but practically, opportunities could be waning.

The bank appears structurally weak in a rising rate scenario. OBC's margins have slid to 2.6%, among the lowest in the industry, due to poor yields on huge non-performing advances of eGTB, redemption of high-coupon bonds and rise in cost of funds due to low CASA.

Battling all these factors to recover margins could be time-consuming. ICICI Securities estimates that a 100 bps interest rate shock will hurt OBC's PBT by 40.7% and by 11.7% even after ignoring investment depreciation. However, the bank is adequately capitalised, fee income is accelerating and valuations remain undemanding.

Bank of Baroda

Research: Motilal Oswal

Recommendation: Buy

CMP: Rs 238.15 (Face Value Rs 10)

12-Month Price Target: NA

AS BoB did not witness any increase in balance sheet size between FY02 and FY04, the management is planning a catch up by increasing its loan book aggressively. A large part of this growth is likely to come from retail (17% of total loans and 20% of domestic loans, Yo-Y growth of 57% in Q1 FY07). BoB will also focus on its SME segment, which yields more than the corporate sector, even on a riskadjusted basis. In terms of deposits, Motilal Oswal believes that BoB can fund a 30% loan growth with a 15-16% growth in deposits as it has excess SLR on its books. Strong loan growth, coupled with lower provisioning requirement going forward, will drive a 20% CAGR in profit during FY06-08.

Punjab National Bank

Research: IDBI Capital

Recommendation: Buy

CMP: Rs 453.75 (Face Value Rs 10)

Nine-Month Price Target: Rs 487

PUNJAB National Bank (PNB) had loan and investment assets of Rs 1,15,000 crore and net worth of Rs 93,800 crore in Q1 FY07. PNB has started leveraging its state-of-the-art technology platform and extensive reach to attain greater scale in product delivery and business. IDBI Capital expects the bank to put up a robust performance in business and post a Y-o-Y 15% growth in FY07E.